Calyxt, Inc. — Q2 2017 Form 10-Q
Entity note: The supplied filing is for Calyxt, Inc., not Cibus, Inc. It reports the quarter and six months ended June 30, 2017; financial statements are unaudited. Amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Calyxt is an early-stage plant gene-editing company developing specialty food ingredients and crop traits. It had no product sales; revenue came from research and development (R&D) agreements. Its stated lead candidate was high-oleic soybean, with commercialization expected by the end of 2018; other candidates included high-fiber wheat and herbicide-tolerant wheat.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $223,000 | $116,000 | $278,000 | $222,000 |
| Operating expenses | $3.463 million | $2.608 million | $6.307 million | $5.275 million |
| Operating loss | $3.240 million | $2.492 million | $6.029 million | $5.053 million |
| Net loss | $3.395 million | $2.457 million | $6.227 million | $5.026 million |
| Basic and diluted loss per share | $0.17 | $0.13 | $0.32 | $0.26 |
| Cash used in operating activities | — | $4.063 million | $2.203 million |
Revenue increased 92.2% in Q2 and 25.2% for the first half, largely due to recognition of revenue associated with a terminated R&D licensing agreement. No cost of revenue was recorded in 2017, versus $100,000 in Q2 2016 and $200,000 in H1 2016. R&D expense rose 11.3% in Q2 and 1.6% in H1; selling, general and administrative expense rose 67.2% and 49.6%, respectively. The filing attributes higher overhead principally to stock compensation, staffing, and professional services. Reported gross-margin comparisons are not informative given the contract-revenue mix and zero cost of revenue in 2017.
At June 30, 2017, cash and cash equivalents were $2.521 million, total assets $16.937 million, and total liabilities $9.353 million. Current liabilities of $8.900 million exceeded current assets of $5.323 million; the resulting working-capital deficit was $3.577 million. Amounts due to related parties were $5.807 million, including a $3.0 million Parent advance; these obligations bore interest at 12-month EURIBOR plus 5%. The filing reports no conventional third-party borrowings. Accumulated deficit was $34.795 million. Property and equipment, net, was $11.334 million.
Material changes and subsequent events
- Net loss increased 38.2% in Q2 and 23.9% in H1 versus the comparable 2016 periods. H1 operating cash use increased to $4.063 million from $2.203 million.
- Cash declined from $5.026 million at December 31, 2016 to $2.521 million at June 30, 2017. H1 financing cash flow included a $3.0 million Parent advance, partly offset by offering costs.
- After quarter-end, the July 25, 2017 IPO sold 8.05 million shares at $8.00 per share and generated approximately $58.3 million net proceeds, including $20.0 million from Cellectis. The company used $5.7 million of the Cellectis proceeds to repay part of its obligations to the Parent.
- The filing states 1,159,266 options vested upon the IPO and estimates approximately $5.6 million of related stock-compensation expense to be recorded upon its completion. This was not reflected in the June 30 financial statements.
- A contingent agreement to sell the company’s Roseville land and buildings depended on entering into a construction agreement and lease. Calyxt planned a new office and lab facility with greenhouses and research plots; it expected the transaction to close in the second half of 2017.
Outlook, risks, contingencies, and unusual items
- Management expected operating losses and expenses to increase as product development, field trials, staffing, commercialization preparation, and public-company costs expanded. The filing gave no quantitative financial guidance.
- Management said Cellectis had guaranteed operating funding through August 2018, unaffected by IPO timing or proceeds. The company nevertheless cautioned that funding and future profitability were not assured and that it expected to need additional capital.
- Key execution and funding uncertainties include field-trial progress and costs, regulatory requirements, successful development and commercialization, competition, intellectual-property protection, and the ability to raise capital on acceptable terms. The high-oleic soybean target of commercialization by end-2018 is a company expectation, not a guarantee.
- Revenue was concentrated: two customers accounted for 82.7% and 12.4% of Q2 2017 revenue, and 72.3% and 20.0% of H1 revenue, respectively. Calyxt also relied on Cellectis for services, funding, and licensed technology, with future royalties payable under the technology license.
- Management identified a material weakness in internal control over financial reporting relating to review of forward-purchase derivative contracts. Disclosure controls were deemed ineffective as of June 30. Remediation steps were underway, but the weakness would persist until implementation and testing demonstrated effectiveness.
- Forward purchase commitments with growers were approximately $1.8 million and were not recorded as liabilities because the seed and grain had not been delivered. No material legal matters requiring accrual or disclosure were identified.
Important facts for investors to verify
- Confirm this is the intended issuer: the provided filing identifies Calyxt, Inc., rather than Cibus, Inc.
- Review the IPO proceeds, use of funds, related-party repayment, and post-IPO shares outstanding; the filing reports 27.65 million common shares outstanding as of August 31, 2017.
- Track cash burn against the Cellectis funding guarantee through August 2018 and assess subsequent financing needs.
- Monitor product-development, field-trial, regulatory, and commercialization milestones, including the stated high-oleic soybean target.
- Assess customer concentration, Cellectis-related obligations and dependencies, and exposure to foreign-currency movements.
- Check whether the derivative-contract control weakness is fully remediated and whether the proposed facility transaction proceeded.